From Retrenchment to Enchantment

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With United Airlines and Continental Airlines now owned by a single holding company and expected to complete their merger next year, plenty of executive positions have become redundant. But the CFO who departed last October, United’s Kathryn Mikells, didn’t shed many tears.

Upon her exit from the friendly skies, Mikells took over the top finance job at a far less visible public company, Nalco, a $4 billion player in the commercial water and energy sustainability industry. Although at United she piled up enough experience for a lifetime in finance — serving stints as head of corporate real estate, treasury, financial planning and analysis, and finally investor relations before being named CFO in 2008, when the company was on the precipice of disaster — she’s quite happy to be in a growth industry.

“Not well known by the public, but an incredibly strong business with great growth prospects and very good profitability and cash flow? I’ll take that any day of the week,” she says.

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Not that moving to an entirely different type of business, after being at United for 16 years, doesn’t present its challenges, which Mikells discussed in a recent interview with CFO. An edited version of that interview follows.

What was your job-hunting strategy?

Having worked in a consumer service–oriented industry for a long time, I was really interested in doing something different. I was specifically looking to get into a commercial industry that was very well positioned globally. United provides global service, but it doesn’t have the complexity of a global industrial company. It operates under bilateral agreements between countries that give it a much-simplified tax structure. I wanted that greater complexity.

I was also looking for a company that had very good growth prospects. The airline industry had been retrenching almost the entire time I was in it; a lot of the activity was about shrinking rather than growing. I wanted to use my portable finance skills in a different context where I could both add value and further broaden my experience. Nalco was a very good fit for that.

Still, the transition must have been something of a culture shock after so many years at United.

There are some things about Nalco that made the transition easier than you might think. In addition to its strong business model and being a very healthy company, the management team has a good mixture of people who have been with Nalco for a long time and bring a lot of credibility, and people newer to the company or its industry that are bringing new thinking to the table. That is a powerful combination.

There seems to be a long-running debate over how portable finance skills really are. Certainly in some industry sectors, like technology, manufacturing, health care, and retail, finance executives almost always stick around. What’s your view?

I think that skills are portable overall. Certainly longevity in an industry can be helpful in knowing how to get things done, and when moving to a new one you’ve got to work hard to overcome that. But many folks are capable of doing it.

At Nalco we look very closely at the capital structure we need to be successful in executing our strategic vision. That’s very similar to my old job at United. Also, at any company, it’s part of the CFO’s job to determine what has to be measured to make sure you’re moving toward the desired outcomes. People tend to manage what they measure.

And making decisions on mergers and acquisitions, and how those intersect with where the company is going strategically, is key expertise that almost any CFO brings to the table.

But, as you pointed out, there are big differences between your old and new industries. What’s been the greatest challenge for you?

I think it’s getting the right balance between capitalizing on growth opportunities and the need to deliver current and consistent earnings growth. We have tremendous opportunity in emerging markets because of their big push for industrialization and their water scarcity and quality issues. But we’re a highly variable-cost business by nature. Our investment is largely in the people we put on the ground to service our customers. We really have to manage our business to ensure good earnings momentum.

What have been the finance highlights of your first eight months at Nalco?

We’ve refinanced about $1 billion worth of debt and reduced our highest-cost debt, eliminating our 9% senior discount notes. In both cases we’ve saved a lot of interest expense. We’ve also sold a couple of noncore businesses. And we have revamped our performance-reporting approach, again looking to ensure that during this period of larger investment in the business we’re consistent with our shareholders’ expectations.

What advice can you offer to other finance executives in making an industry switch?

A lot of it is about learning agility — getting up to speed and figuring out quickly how to add value. At the end of the day, we’re all judged on the value we bring. It’s crucial to have some early wins and create opportunities in the new business.

What do you think Nalco saw in you that made them say, “She’s the one”?

I think it was the depth of experience I had at United, with all the different jobs I had and the things I was able to achieve. When I became CFO in 2008 the company was close to its second bankruptcy. The price of oil had skyrocketed to $147 a barrel, the economy collapsed, and the company, which had a fuel-hedge portfolio that was underwater by over a billion dollars, went into a financial crisis.

I had to work hard with others at the company to right that situation by strengthening the balance sheet and liquidity position, and getting operating and financial performance back to a place where we had an opportunity to successfully merge with the best partner available to us.

I’ve heard that if you add up the airline industry’s profits and losses since its beginning, it’s been about break-even. Would you say that’s an accurate characterization?

I think to say that it’s at a net loss would be an accurate characterization.

Is that a viable industry, then?

I still think it is. There’s too much supply relative to demand, the industry’s competitive dynamics are difficult, and regulatory barriers hinder it from restructuring in a rational manner. So there’s work to be done, but the merger of United and Continental was a big step in the right direction, both for those two companies and the industry in general.